India’s fast-moving consumer goods (FMCG) sector is facing a slowdown in rural demand, which accounts for about 60% of the industry’s revenues. The reasons for this include deficient rainfall, high inflation, and stiff competition from local players. However, some FMCG companies are hopeful that the upcoming general elections in 2024 will boost rural consumption, as the government is expected to increase spending and offer sops to rural households.
Rural demand lags urban growth
According to a report by retail intelligence platform Bizom, rural demand for FMCG products grew by only 3.5% in the first half of FY24, compared to 8.5% in urban areas. The report also found that rural markets have been losing share to urban markets since FY19, when they contributed 63% of the FMCG revenues.
One of the main factors affecting rural demand is the erratic monsoon, which has impacted the agricultural output and income of farmers. The northern belt, which contributes significantly to rural demand, received deficient rainfall in FY24, affecting the kharif crop. The rabi crop, however, is expected to be better due to increased acreage and revised minimum support prices (MSPs).
Another factor is the high inflation, which has eroded the purchasing power of rural consumers. The consumer price index (CPI) inflation rose to 6.3% in December 2023, breaching the Reserve Bank of India’s (RBI) target range of 2-6%. The food inflation was even higher at 8.4%, driven by rising prices of edible oils, pulses, eggs, and meat.
A third factor is the proliferation of smaller regional players, who have been able to offer lower prices and cater to local preferences. These players have gained market share from the established FMCG companies, especially in categories such as biscuits, snacks, detergents, and personal care products.
FMCG companies see polls boosting rural demand
Despite these challenges, some FMCG companies are optimistic that rural demand will pick up in the next few quarters, as the general elections in 2024 will create a favourable environment for consumption. They expect that the government will increase its spending on various schemes and offer sops to rural households, such as cash transfers, subsidies, and loan waivers.
“During an election year, governments often extend benefits which are provided as part of various schemes, offer sops, helping rural households,” said Akshay D’souza, chief of growth and insights at Bizom.
Some FMCG companies are also taking steps to revive rural demand by launching new products, expanding distribution networks, and offering discounts and promotions. For instance, Parle Products has launched a new range of biscuits under the brand name Parle-G Gold, which is targeted at premium consumers in rural areas. The company has also increased its rural distribution by 10% in FY24.
“We are anticipating a good rabi crop output and a positive impact of elections on rural demand. We are also focusing on innovation and affordability to drive growth,” said Mayank Shah, vice president at Parle Products.
Conclusion
Rural demand is a key driver for the FMCG sector in India, as it accounts for a large share of the industry’s revenues and growth potential. However, rural demand has been sluggish in FY24 due to various factors such as deficient rainfall, high inflation, and competition from local players. Some FMCG companies are hopeful that the upcoming general elections in 2024 will boost rural consumption, as the government is likely to increase spending and offer sops to rural households. They are also taking measures to revive rural demand by launching new products, expanding distribution networks, and offering discounts and promotions.